The Tyranny of Contract

The Supreme Court today issued another opinion (American Express v. Italian Colors Restaurant) making it harder to sue in federal court after you've "agreed" to arbitration and "agreed" to waive any authority to pursue a class action. This kind of case—strengthening arbitration clauses and weakening class action privileges—is what people point to as exemplifying the "pro-business" bias of the Roberts Court. I've pushed back on that argument before, but today I want to push back a little the other way.

Specifically, I want to push back on the idea that these decisions are admirable as vindicating the "liberty of contract." A good example of that argument is made by graysilverback-blawger Walter Olson, who hails today's decision as "a victory for freedom of contract."

I do not think today's decision and the others like it are a victory for any kind of freedom or liberty of contract. I think they are better understood as furthering a pernicious tyranny of contract. No one—and I mean no one—negotiates a credit card or cell phone or cable television contract. This is true for consumers and it is true for small businesspeople. These are take-it-or-leave it arrangements, so the only option is to vote with your feet and sign on with a competitor. But it is no surprise that all the options impose these same onerous terms and waivers because in the final analysis no consumer or small businessperson will ever choose a credit card or cell phone based on finely printed dispute-resolution procedures. We choose on price and features, full stop. Anyone sophisticated enough to understand the effect of these provisions is sophisticated enough to know there is no choice but to accept them.

That is not to say that the Supreme Court's decisions in these cases are necessarily wrong to enforce these provisions. I am suspicious of the "effective vindication" doctrine that was at issue in today's case because it is a judicially crafted exception to rather clear federal legislation. And the objectives the plaintiffs' bar seek to vindicate can be achieved the old fashioned way: through legislation.*

So these decisions can be defended in terms of judicial modesty, and as consistent applications of basic interpretative principles. But it goes way too far, I think, to celebrate them as a triumph for freedom. The existence of these contracts is best understood as a market failure. They have the effect—undisputed in today's opinion—of making it cost prohibitive for people to prove violations of their statutory rights. It may well be wise of the Supreme Court to say, "this is not our problem." (Or, as Justice Kagan put it, "too darn bad.") But let's not pretend that individual freedom was actually increased as a result.

UPDATE: Walter Olson points out on Twitter that "grayback" is apparently an obscure insult, which was not my intent. I meant "silverback," which is to say that Mr. Olson is like a gorilla and that is not at all offensive. In seriousness, I was ineffectively just referencing the fact that he's been blogging about the law longer than just about anyone.


*FOOTNOTE: The chances of such legislation getting passed are undeniable small, for much the same reason that the companies are able to impose these terms in the first place. The companies each have billions on the line, and the consumers have literally pocket change at stake. So there are public choice problems. But another way of looking at this is just that Congress is "pro-business" too.